Did Loeb Really Win the Sotheby’s Board Fight?

The New York Times thinks Dan Loeb was the clear winner today but it is hard to credit the conclusion since he was offered a board seat and has basically wound up with … a board seat.

The last-minute settlement – reached a day before investors were scheduled to vote on the board – represents a clear win for Mr. Loeb, the veteran activist investor who has waged a monthslong fight against Sotheby’s in a bid to shake up the 270-year-old auction house.

The compromise blunts his three seats with an additional two giving Loeb little more in the way of power. Yes, Loeb will be allowed to increase his stake from under 10% to 15% but without a clear plan to increase revenues substantially, that increased stake may only be a gift to present shareholders who sell to him in the coming weeks.

Here’s the weirdest part of the story: Loeb is barely in it. I mean, that’s an exaggeration; he buys shares and takes meetings and exchanges weird e-mails.5 But the Loeb who matters to this story is mostly a figment of the collective imagination of Sotheby’s board and advisers. Ruprecht, the CEO, consistently assumes that Loeb will demand that Sotheby’s return capital to shareholders.6 Sotheby’s advisers at Goldman Sachs and Wachtell, Lipton, Rosen & Katz told the board a scary story of hedge fund “wolf packs” and takeover threats.7

And Dealbook’s Steven Davidoff thinks Sotheby’s lost more than Loeb won:

What happened next was more wasted money and time as the parties litigated the validity of the poison pill. Sotheby’s knew that it had the upper hand and Delaware law was on its side. But for Mr. Loeb, winning the litigation wasn’t as important as deposing the Sotheby’s directors in the hope that he could find some ammunition for his fight. In other words, Sotheby’s overreached with the poison pill and gave Mr. Loeb an opening to inflict damage.

Mr. Loeb came up a winner in the litigation tactic that Sotheby’s handed him. Mr. Loeb lost the case, but in the hearing before a court in Delaware, emails sent among the Sotheby’s directors came out with some damning stuff. Steven B. Dodge, the lead independent director, stated that the board “is too comfortable, too chummy and not doing its job” to another director. Another email stated that at least in part Mr. Loeb was “right on the merits.”

There’s no commenting on this site but feel free to send an email in with your thoughts and we will keep posting them anonymously or with credit. We received this comment today:

Perhaps you read a different article in the NY Times than I did (there were two this morning). It clearly states Wilson and Reza are essentially Loeb appointees, which gives Loeb a 1/5 voting block on the newly expanded board. Furthermore, his fight revealed serious differences within the board members themselves, and galvanized a majority of the shareholders to side with him. With a core 20% of the board completely under his control, he’s practically half way to a majority before they’ve even met.

I would suggest it augurs for fundamental differences in the way Sotheby’s will be conducting, and competing for business in the coming years.

Yes, 1 of 12 seats is not as many as 3 of 15 seats and 15% ownership is more than 10% ownership. Beyond attacking expenses, which may improve earnings but will not transform the stock price, Loeb has more say without much to say.